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Yuval Levin

Liberals squandered a lot of their leverage on the fiscal cliff

If even under the conditions of the past month — with a very liberal president just re-elected, Republicans in disarray, public opinion on taxes seemingly friendlier to them than it has been in decades, and higher tax rates automatically taking effect — the Democrats can’t get more than a tiny pittance of revenue and no chips to use later, then their basic approach to fiscal issues just won’t work. The idea that they will raise rates again in the Obama years when they don’t have all these factors working in their favor is a fantasy. And the notion that the politics of taxes has decisively changed in their favor has been disproven by their own behavior: Many Democratic senators were as relieved as Republicans to see the threshold for higher rates rise well above $250,000, and would not have stood for it dropping below that level to where their upper middle class voters are. Having discovered an effective political wedge in the tax debate, the Democrats have now basically used it up and gotten awfully little in return. They can’t begin to acknowledge that the levels of spending they want to sustain will require a far greater tax burden on far more people (and in a far more regressive way) than today’s code, and if they can’t even state what they want out loud then they’re not likely to get it. Their bluff has been called. The welfare state they want to retain and expand cannot be funded, and they apparently have no way to do anything about that…

The fiscal trajectory of our welfare state is not sustainable, no matter how much taxes go up. That is the truth at the heart of our budget crisis. The fiscal-cliff debate ignored that truth from start to finish, and so has achieved nothing worthwhile for anyone. The Republicans know why they got nothing out of this: The expiration of the tax rates meant they could only contain their losses here. But what about the Democrats? Now they have gotten their tax increase, and what has it gained them but the prospect of an even slower economy? What’s their game plan?

Blowback

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Taxing the rich will always be popular. The liberals can go to that well forever even if it doesn’t begin to address our debt problems.

Just today 62% of Americans support across the board cuts. Right, as soon as they find out what that entails they’ll abandon it.

The Republicans control the House. That’s it. The Senate, the White House, the press, academia, Hollywood/TV our culture, are largely controlled by the left. And the public is incredibly ignorant about the budget.

BTW, I think that the fact that 98% of the tax rates re now permanent with no expiry date probably justifies any deal the Republicans made. Allowing this to be up for a vote every few years was downright idiotic.

I know we conservatives love to claim defeat at all times, but I think Yuval is right on this. The permanence of current tax rates for 98% of tax payers as well as the AMT is huge. It changes the playing field going forward. It used to be that any continuation of existing rates was a “tax cut” both rhetorically and in congressional scoring. Made it almost impossible to do any serious tax reform in the future. Now in order to pass Congress’s “revenue neutrality” bar, it can come in nearly $4 trillion lower than was the case a few days ago. That considerably increases the chances that tax reform, when it happens, can actually close loopholes while lowering rates. It doesn’t make it PROBABLE but it greatly increases the chances. And the left has lost a big pressure point now that they no longer have the pending expiration of existing rates to hold over conservatives’ heads.

Frankly, if the GOP is going to continue to do absolutely nothing to cut back spending, I’d rather see taxes go up. $1.6 trillion in deficit spending every year is a freaking time bomb with a very short fuse.

BTW, I think that the fact that 98% of the tax rates re now permanent with no expiry date probably justifies any deal the Republicans made. Allowing this to be up for a vote every few years was downright idiotic.

Rocks on January 2, 2013 at 1:52 PM

Exactly right. No, nothing in legislation can truly be described as “permanent,” but allowing the rates to expire every so often just created that many opportunities to hold the Republicans over the barrel and force them to accept bad deals.

The bill is bad in a lot of ways, but making the tax cuts permanent and adding a permanent fix to the Alternative Minimum Tax for the first time ever probably makes this overall a very good bill. We’re still kicking the can down the road on spending, the “doc fix,” and sequestration, but at least something was accomplished. Which is honestly much better than I expected.